Where should earnest money be held when purchasing a new home through a builder?

When purchasing a new home through a builder, earnest money is typically held in a neutral third-party escrow account. This arrangement provides security for both the buyer and the builder. Holding the earnest money in escrow ensures that the funds are available for the transaction and are not directly under the control of either party, which helps prevent potential disputes.

Using a neutral third-party escrow service allows for independent management of the funds and ensures that they can only be released under the conditions agreed upon by both the buyer and the builder. This process fosters trust in the transaction and protects the interests of all parties involved.

In contrast, holding earnest money in the builder's escrow account may lead to a conflict of interest, as the builder could have direct control over the funds. Keeping it in the buyer's bank account does not provide the same level of protection for the seller (or builder), and it could complicate the transaction. Similarly, although a broker's trust account may seem like a suitable option, it is typically preferred to use a neutral escrow arrangement for this type of transaction to avoid any potential issues of liability and to ensure the funds are handled appropriately.